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Is Mortgage Life Insurance Really Necessary?

Apr 6, 2008
You might be thinking, "I have life insurance already. So why on earth do I need to consider mortgage life insurance?"

What you may not know is that with a mortgage life insurance policy, in the event of your death, the outstanding balance of your mortgage will be covered, ensuring that your family will not be put under unneccessary financial pressure. With a repayment mortgage what happens is that the level of coverage will decrease in line with the decrease in the level of debt, ensuring that you are not paying more than your situation dictates.

You can choose to buy your mortgage policy on either a joint or single life basis. When you initially start up the policy, you will be asked to specify the exact length of time it will be required to run, known as the term of the policy, as well as the total amount of coverage required at the beginning of the policy. It is also highly advisable to include critical illness cover as a factor of your policy, which will cost you a little bit more again.

The reason why the advantages outweigh the financial cost is simple but very important. The company that you have obtained the policy from will pay out to the principal insured either on death or the contraction and diagnosis of any one of a number of specified critical illnesses, depending on which occurs first.

If the value of the policy is paid out as a benefit, the mortgage policy is then terminated. If, however, you manage to live until your whole mortgage is paid off and have not had to cash in your mortgage life insurance policy, the policy ends without anything being paid out.

Unforrtunately your mortgage life policy has no monetary value at its end. From another perspective, if you have a policy which has run right up until the end of your mortgage term, you have paid off your entire debt and therefore have no need for the policy and are debt free. If perhaps you are in the process of reviewing your current mortgage life policy, be sure not to cancel the current policy until you are sure that you have been given the go ahead for the next one. Sounds like common sense, but if you cancel one policy before you have definitely established another, you may find yourself uninsured and unable to reinsure yourself.

The duration of your policy can run from any time between one and forty years. You may decide to run the policy in conjunction with your mortgage for its duration of for any part thereof. The decision for this will solely depend on your own personal financial needs along with what exactly your situation dictates.

Remember that most of the companies that offer this coverage will allow you, under certain circumstances, to increase the amount of the coverage that you have based on certain needs and criteria. A good example would be the increase in your mortgage maybe due to a home improvement loan. If you were a single homebuyer and then got married, you may, under certain instances, be able to re-evaluate your mortgage life term insurance to match your new circumstances.

Once you have an idea of what you require it is simply a matter of searching the web. Here you will find many sites offering sound advice on the best policy to suit your needs.

To summarise, it is imperative that you seek the advice and expertise of a qualified insurance broker when seeking to obtain a mortgage life insurance policy. He will be able to show the advantages entailed in critical illness cover and whether it's for you. You will have to decide whether to cover the whole value of the mortgage and also whether the policy will run for the full term of the mortgage, if not longer. Happy hunting.
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